Lithium stocks smashed after bearish notes from Goldman Sachs and Credit Suisse

It's a complete bloodbath for lithium stocks on Tuesday, headlined by large cap names like Allkem (ASX: AKE), Pilbara Minerals (ASX: PLS) and Core Lithium (ASX: CXO), all of which are down at least -10%.

The local lithium sector was poised to have a pullback after a weak lead from Wall Street. More specifically, lithium-related ETFs like the Global X lithium & Battery Tech ETF and the VanEck Rare Earth/Strategic Metals ETF fell -2.6% and -1.0% respectively overnight.

The weakness was further exacerbated by notes from Goldman Sachs and Credit Suisse.

Credit Suisse: Cathode production rumours

Credit Suisse noted a sharp decline in Wuxi lithium carbonate futures prompted by rumours of future production downgrades by a Chinese cathode maker, according to Bloomberg.

"Wuxi Li Carbonate futures dropped -7% on speculation in China that a major cathode producer might have slashed production targets and some Chinese firms forecasting softening in the market later in 2023," said Saul Kavonic, an analyst at Credit Suisse.

Goldman Sachs: Supply to outpace demand

Goldman Sachs reaffirmed its bearish views on lithium earlier this week, with the view that supply will begin to outpace demand from 2023 onwards.

Source: Goldman Sachs Global Investment Research

Not the first time

Goldman Sachs has plenty of experience in triggering a broad-based selloff among battery metal stocks.

On 1 June, the investment bank wrote a note saying the "we see the battery metals bull market as over for now," due to an "outsized supply response well ahead of the demand trend."

On that day, names like Allkem, Pilbara Minerals and Core Lithium tumbled -15.4%, -22% and -20.4% respectively.

Notwithstanding other factors that may have influenced share price performance, it took the three lithium heavyweights roughly 2 months to recover from the Goldman-induced selloff.

Allkem share price chart (Source: TradingView)

Selloff led by large caps

Of note, it's the large cap lithium names that headline the selloff. They're also selling off on rather abnormal volumes including (volumes at 3:20 pm AEDT versus 20-day average):

• Allkem 9.6m versus 4.4m (+118%)

• Pilbara Minerals 53m versus 26.2m (+102%)

• Core Lithium 80.3m versus 33.5m (+140%)

Emerging names like Lake Resources (ASX: LKE) and Liontown (ASX: LTR) are also selling off, both down around 7-8%. Although their volumes are only slightly above 20-day averages.

While the smaller end of town is mostly down 1-5%, on rather subdued volumes, more broadly speaking.